Gap revenue (GPS) Q1 2024

Hole posted positive comparable sales across all four of its brands on Thursday, leading the apparel giant to raise its full-year guidance as CEO Richard Dickson's turnaround strategy begins to take effect.

The retailer behind Gap, Banana Republic, Athleta and Old Navy exceeded profit expectations and also beat sales.

Here's how Gap did compared to what Wall Street expected, based on a survey of analysts by LSEG:

• Profit per share: 41 cents versus 14 cents expected
• Gain: $3.39 billion versus $3.29 billion expected

Gap shares rose more than 20% in extended trading Thursday.

The company reported fiscal first-quarter net income of $158 million, or 41 cents per share, compared with a loss of $18 million, or 5 cents per share, in the same period a year earlier.

Sales for the period ended May 4 rose about 3% to $3.39 billion, compared with $3.28 billion a year earlier.

It's “the first time in many years that all four brands are reflecting positive results. In fact, we were looking for when they had, and it was hard to find,” CEO Richard Dickson told CNBC in an interview.

“We are very confident in our quarter and it has given us the confidence to increase our expectations for full year 2024, both in terms of revenue prospects and operating margin. … It continues to really demonstrate, if you will, our confidence that our priorities are really starting to take shape,” he added. “The culture is re-energized and we are delivering what we said we would deliver to our shareholders.”

Gap now expects net sales to increase “slightly,” up from its previous forecast of flat. The company expects gross margins to grow by at least 1.5 percentage points, compared to previous expectations of at least half a percent.

The biggest change in Gap's forecast concerns its operating income outlook. It now expects operating income to be in the mid-40% growth range, compared to previous expectations of low to mid-teens growth.

Dickson, who took the helm of Gap in late August, is a marketing guru who has worked to revitalize the company's portfolio of brands. His work focused on telling brand stories and positioning names like Gap and Old Navy back into the center of the culture.

Some of this is already starting to manifest itself.

Earlier this month, actress Da'Vine Joy Randolph wore a denim ball gown designed by Gap's new creative director, Zac Posen, to the Met Gala in Manhattan. A few weeks later, actor Anne Hathaway wore a white Gap shirt dress to a Bulgari party also designed by Posen.

“We were so excited to see it [Hathaway’s dress] marketed and also offered to consumers so they had the opportunity to buy it,” said Dickson. “We continue to believe that better storytelling through marketing and innovative media is resonating.”

He told CNBC that the quarter's success was due to “consistency and financial and operational accuracy,” adding that the company's average selling prices are back to pre-pandemic levels thanks to lower inventory levels leading to better sell-through . But with better designs and marketing, consumers will only buy more.

Here's a look at how each of Gap's banners performed during the quarter, compared to Wall Street estimates compiled by FactSet, which revised its estimates following Gap's report:

• Old Navy: Net sales of $1.9 billion rose 5% from last year, while comparable sales rose 3%, higher than the 2.3% increase expected in the revised FactSet estimate. Dickson said the brand saw its “highest quarterly figure in three years” – a big win for Gap's most important brand in terms of revenue. He noted that there is strength in the women's sector and that there are “positive results in the active sector” – an “important category” for the company.

• Banana Republic: Revenue of $440 million increased 2% compared to last year. Comparable sales rose 1%, well ahead of the expected 4% decline, according to the revised FactSet estimate. The growth also comes on top of an 8% decline in the same period a year ago.

• Athlete: Revenue of $329 million increased 2% compared to last year. Comparable sales increased by 5%, after a decline of no less than 13% in the same period last year. Analysts had no expectations for Athleta's comparable sales.

• Hole: Revenue of $689 million was flat compared to last year. Comparable sales rose 3%, higher than an expected gain of 2%, according to the revised FactSet estimate. “Gap's performance was primarily due to strong marketing and product execution around the Linen Moves campaign,” the company said.